The Spirit of the Beast

Headline just read from the AP “Recovery in danger as firms, homebuyers cut back”. The operative work here, “recovery” is beyond inappropriate, and at best, belies significant intellect regarding the current economic malaise.

Who is feeling any sense of recovery?

Real estate offices peddling distressed properties to opportunistic buyers.

Case in point, a new home in my neighborhood that was built and sold in 2007 for $1.4 million slid into foreclosure several months ago. Out of curiosity, I hawked the estate tracking down the details to find it to market only last week for $594,000.

I spoke directly to the listing agent who stated that there were 6 legitimate standing offers before the house even hit the MLS. Now, I rarely believe a single word any real estate agent tells me (other than mine who has been a trusted advisor for over 10 years) but I was able to confirm that there were in fact more than 6 offers.

This niche industry has its own written prophecy to be recognized on an eventual upside; this market will go away one day, but what about right now?

One of the few points in the AP article I agreed with state that “ . . .new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. Collectively, the past three months have been the worst on record for new home sales.

The weak sales mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

The two reports are likely to stoke fears that the economy is on the verge of slipping back into a recession.” (emphasis mine)

As I stated in My August 13, 2010 post entitled Forecasting In An Era Of Information Immediacy, in part, the immediate 24/365 news cycle alone will not provide an accurate platform to hedge the market. One must empirically derive signs and signifiers to calculate business positions.

My neighborhood reflects and confirms much of the data from the news wires.

Where new home construction was so abundant - in a fully mature northwest suburb just outside of Chicago - you could not look in any direction in any quadrant without seeing orange fencing, now, only custom, contracted projects appear.

Public servant positions have been eliminated and hiring frozen. The community chest is an empty box. Nearly every million and multi-million property is either for sale, in foreclosure, or tepidly holding out. A heavy surplus of existing homes go unsold and rentable apartments are in short supply as those who would once rent and save to purchase are now just staying put. Retail space is full with few empty spaces, but foot traffic is minimal. Several large office suite complexes are entirely empty – thankfully, they are well maintained as the only indication that all is not well is huge empty parking lots behind the buildings. A large townhouse project started 7 months ago has only one sold unit, the infrastructure of streets/sewers/lights await.

Something Wicked This Way Comes. And laughter will not save us.